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Thursday, October 23, 2014

In New Zealand, the power generation and distribution infrastructure was paid for from the taxes of New Zealand citizens and companies.

I don't know if that statement is 100% true, 90% true or possibly 50% true but in this article, I am talking about that portion of our electrical "plant" that was paid for by Kiwis.

When the citizens of a country pay for their electrical infrastructure, there is an implicit contract between them and their government. Namely, that electrical prices will be kept as low as possible. There is absolutely no reason that the power companies need to make a profit. They should price their electricity such that they can pay reasonable wages to their workers, have enough for maintenance and upgrading and even put away, over the years, a fund for contingencies such as earthquakes and storms. Electric companies are large enough to self insure.

And why should electricity prices be kept low. There are three reasons. First for the citizens, inexpensive electricity is a component of welfare. When the government is throwing away jobs as fast as it can, being able to afford electricity is a necessity, not a luxury.

Secondly, electricity is a component of the cost of everything we buy in New Zealand. Just think of the electric bill of a super market or any other retail outlet. This cost goes on the price of everything we buy. Again, with jobs scarce and the government allowing and encouraging overseas workers to comer here and take jobs from Kiwis, we need less expensive goods.

Thirdly, energy is a component of everything we manufacture and export. Inexpensive electricity gives us a definite advantage against our overseas competitors.

Let's go back a couple of years to when our electrical companies were owned by our government (by us). The government had this silly system of telling the electric companies what dividend they expected and the company had to pay it. that is totally backward. Dividends are paid when a company makes a profit, not paid and then the captive audience, the power users of New Zealand have to pay the inflated electric costs in order to pay the dividend. Besides the power companies should not be making a profit.

The government would argue, of course, that this revenue was necessary for the government to do her good works for the people of New Zealand. She collects this money and uses it for health care, welfare and so forth. However it costs money to collect and distribute money. It is far more efficient to simply leave this money in the hands of New Zealand citizens and companies than to collect it and redistribute it. Cheaper electricity is an instant welfare payment to all Kiwis and if you want to talk health care, cheaper electricity lowers the running costs of every hospital and clinic in the land. Electricity is so universally used that it is far better to keep its price down than to use it as a hidden tax.

Note that people are now considering seriously a guaranteed minimum wage for every adult citizen. Inexpensive electricity is very much along the same path.

Now we have the cockamany situation that the government has sold off almost half of our power companies and the new owners are arguing that the power companies should be paying them a dividend. Sorry bunky. Companies distribute dividends when they make a profit and you still don't own a controlling interest in these companies. and so can't set the policy. Unfortunately, the upper echelon of these companies probably now does own shares and they will want to set up the situation so that they get dividends. Is this an argument for not allowing anyone in a company to own shares in that company. I know this flies in the face of the argument that if they own shares they will do their best to make the company profitable but perhaps this should be reversed in companies such as electrical which are a universal good and a universal necessity and where the main way of making the company profitable is to gouge their customers.